Noncompete clauses are commonly used in the tech world, but this popularity does little to dampen the controversy surrounding measures that are universally seen to harm workers.  New research from the University of Maryland highlights just how harmful they are, regardless if you’re a minimum wage cleaner or a world-class coder.

The study covers a wide range of workers and finds that noncompete clauses aren’t just harmful to those on high incomes but also those at lower income ranges too.

“There have been anecdotes of that fact, but this is the first systematic evidence,” the researchers explain. “This is shocking because when you think about noncompetes, you think about tech workers and executives – you’re not thinking about doggie-daycare sitters or hairstylists or yoga instructors, but that’s the modal worker that’s bound by a noncompete.”

Stifling movement

Any clause that limits our ability to take better offers elsewhere has obvious implications for our social and economic wellbeing.  Despite this, there are obvious incentives for firms to use them, not least because it makes it easier to justify investing heavily in employee development.  It can also enable lower salaries to be paid, of course.

“All states in the U.S. that enforce noncompete agreements require that workers have some sort of ‘protectable,’ legitimate interest, which is exactly this sort of investment: That you’re giving workers trade secrets or very specialized training,” the authors explain.

It has nonetheless become a political cause that is increasingly being picked up, with numerous states following Oregon’s example in banning noncompete clauses for low-wage earners.  The study highlights how beneficial this ban has been, not least because hourly workers change jobs more.

The research found that their wages grew by 6% after the ban, with the positive wage growth evident across all age and education levels.  There was also a 17% rise in job mobility, with nearly all of this increase due to mobility within an industry.

Moving on up

The data shows that workers are not only moving to new jobs within the same industry, but those new jobs are typically better jobs.  What’s more, the ban on noncompetes appears to benefit women twice as much as it does men, which suggests that women were being held back by the clauses in the past.

“It could be that women are less likely to negotiate over these sorts of provisions, and so they are harmed more when these are being enforced,” the researchers suggest.

Indeed, the ban on noncompete didn’t appear to negatively change employer behavior either, with no reduction in hours worked or the number of people employed.

“What that means is workers’ take-home pay ultimately goes up – hourly wage increases translate into actual earnings increases,” the researchers say.

What did change, however, is that those workers earning just above the threshold introduced in the new law tended to become salaried workers instead of hourly, which is another, albeit unintended, benefit as it places more people into more stable work.

“Despite good arguments for noncompetes potentially benefiting workers, the evidence just doesn’t support that claim,” the researchers conclude. “The evidence suggests that these are bad for low-wage workers.”